Joint Venture Will Accent Spanish

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Joint Venture Will Accent Spanish
Diez Barroso

An heir to a Mexican media fortune teamed with one of Hollywood’s top talent agencies last week to shop for investments south of the border – the world’s fastest-growing media and entertainment market.

Evolution Media Capital, a media and sports investment bank that operates out of Creative Artists Agency, joined with NALA Investments, a Mexico City holding company run by Emilio Diez Barroso. He is the great-grandson of the billionaire founder of the Televisa media conglomerate, Emilio Azcárraga Vidaurreta.

The venture, NALA EMC, has offices in Century City, New York and Mexico City, and will operate like an investment bank. It will give EMC’s clients the opportunity to invest in film production and distribution, television properties and other media enterprises as well as sports teams in Mexico and throughout Latin America.

The idea is to have opportunities pinpointed by Diez Barroso, who told the Business Journal that there is a demand but a lack of financing for homegrown mainstream movies in Latin America with Hollywood production values.

“Outside of the big players, it’s difficult to get content made,” said Diez Barroso, who runs his investment firm from Mexico City but has a film production arm of the company, NALA Films, in Santa Monica. He believes once better content is created, there will be demand for more.

Fueling the prospects for Latin American film profits is a dramatically improving distribution landscape in the region through growth in box office, Internet adoption and cable subscriptions. For example, Los Gatos-based Netflix Inc. began offering its services throughout the region in September.

A report last year from PricewaterhouseCoopers LLP found that Latin American media and entertainment consumption will outpace the rest of the world through 2015, increasing by about 10 percent annually to reach $109 billion.

Mexico, Latin America’s largest cinema market, set multiple opening-weekend box office records last year, selling 200 million tickets and collecting more than $700 million in box office receipts. But none of last year’s top 10 grossing films were domestic productions. Warner Bros.’ “Harry Potter and the Deathly Hallows: Part 2” claimed the top spot with $34.2 million. By contrast, the top Mexican production, a Spanish-language adaptation of the vintage cartoon “Top Cat,” grossed about $9 million.

The NALA EMC venture is being led on the U.S. side by Robert Stanley, a former investment banker at Merrill Lynch, which has pulled back from the film financing business, and Rick Hess, who previously headed up CAA’s film finance group.

Stanley said Hollywood investors and lenders looking for foreign investments have been focusing on Asia and Europe, not recognizing that some of their best opportunities are much closer to home in Latin America.

“The goal here is to focus on an area that has not received the attention it deserves from the banking industry,” he said, adding NALA EMC will look for investments in the $100 million-$500 million range and fund them primarily from high-net-worth individuals and private-equity firms.

Branching out

Stanley co-founded Evolution Media Capital in 2008 after working in the media and sports structured-finance group at Merrill Lynch. EMC comprises former Merrill Lynch bankers, and ex-employees from the film and sports finance divisions within CAA.

The venture has 32 employees in CAA’s offices in Century City and New York, and shares revenue with the agency, which has a stake in EMC. The firm has raised capital and advised clients on media and sporting transactions totaling more than $15 billion in value. For example, last year, the company advised an ownership group led by Nolan Ryan on the purchase of the Texas Rangers pro baseball team.

While still at Merrill Lynch, Stanley had a business relationship with Diez Barroso, who invested in several deals the bank put together, including the $1 billion capital raise for independent studio Summit Entertainment in 2006 as it was producing the first of the “Twilight” films, which has since become a global success grossing more than $2 billion. (See related story on page 10.)

All the while, Diez Barroso was active in Latin American deals, such as investing in Volaris, a low-cost Mexico City airline co-founded by Mexican billionaire Carlos Slim and Diez Barroso’s cousin, Televisa Chief Executive Emilio Azcárraga Jean.

Diez Barroso’s steady deal flow attracted the attention of Stanley, who initiated talks about the joint venture.

“There is a pipeline of deals that (Diez Barroso) has insight into that is not readily available to the normal investor,” Stanley said.

Diez Barroso’s investment in Summit, which put him on that company’s board, also gave him a front-row seat to one of the early stateside investments in Latin American independent film distribution. Summit launched International Distribution Co. in 2006 to distribute the small studio’s films and other acquired titles.

The company now distributes films to 23 countries in Latin America and has prospered from the overwhelming popularity of all three “Twilight” films in the region. Meanwhile, major studios distribute films in the region through regional companies such as VideoCine, which is owned by Televisa. In fact, VideoCine has exclusive distribution rights to all Warner Bros. films in Mexico.

Clint Kisker, director at Screen Capital International, a Beverly Hills firm that structures and lends capital for film finance deals, said the growth prospects in Latin America are looking increasingly attractive.

“There’s no doubt that it is a good place to exploit content, now more than a few years ago,” he said. “The trick is finding the companies with the right distribution footprint.”

Diez Barroso is already producing and financing the types of films he thinks can have increased play with Latin American audiences. In March, NALA Films will release “Casa de Mi Padre,” a Spanish-language comedy starring Will Ferrell that tells the story of a Mexican rancher trying to pay off his father’s debts to save his land.

Still risky

But as with investing in any emerging market, the challenges are substantial.

Latin America has a well-documented history of content piracy that has long eroded sales of packaged media and movie tickets. What’s more, films produced in one Latin American country don’t always play well in others, as cultural differences abound between countries as diverse as Mexico and Argentina.

Insular business cultures and a perception of corruption also have been obstacles to outside investment. A 2010 report by Transparency International, a Berlin non-profit that tracks corporate and government corruption, found that business people believe there is more corruption in Mexico and Brazil than in Saudi Arabia or Tunisia.

By partnering with the likes of Diez Barroso, EMC is hoping to inspire confidence in investors. Kisker said that reliable foreign partners can help speed investment to the region.

“Awareness is taking off. Whether or not that translates into greater content will depend on how quickly and broadly people can get comfortable,” he said. “(But) if you can bake a layer of accountability into that awareness, it will result in a real rush of capital.”

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